The risks of “corporate tax inversion”, the Italian scenario.
Odoo • A picture with a caption
Alberto Birtele / press materials 
Tax inversion investment is a possible risk for Italian companies operating in Poland, especially if managed by people residing in Italy. An often underestimated issue about which Mr. Alberto Birtele of IC&Partners Poland which tells us the main aspects. IC&Partners is a company specializing in tax and legal consulting in Poland with a vast network of offices around the world and over twenty years of activity on international markets.

Mr. Birtele, what does tax inversion mean?

This term refers to the fictitious location of one or more companies, attributable to the same economic entity, outside the Italian territory, with the main intention of taking advantage of facilitated forms of taxation. The choice in itself is legitimate, but it becomes relevant in the event that the company incorporated abroad is, in fact, considered fiscally resident in Italy.

What does the legislation provide?

First of all, it should be emphasized that this problem derives from a precise verification of the existence of elements such as to qualify a foreign company as a tax resident in Italy. We can say that for the purposes of income taxes all companies and entities that for most of the tax period have alternatively in the territory of the State are considered resident in Italy:

1. registered office: identified in the registered office indicated in the deed of incorporation and in the articles of association;

2. headquarters of the administration: it is the place where the management activity is carried out, to be inferred from concrete data;

3. main object: it is the essential activity for directly achieving the primary purposes indicated by the law, by the articles of association or by the statute.

What are the possible impacts of this legislation on Polish companies of Italian "extraction"?

Let's focus above all on the "administrative headquarters", as it is of greater practical importance. On the basis of Italian law, a company under Polish law (foreign in general) can be considered for tax purposes a company under Italian law, if it is demonstrated that the main strategic decisions relating to the management activity or for the pursuit of the purposes of the entity are taken in Italy.

Redeveloping the residence for tax purposes of a Polish company involves subjecting it to the ordinary tax regime in force in Italy, with rather important consequences.

What are the main consequences in the event of a tax inversion dispute?

In the event of a dispute by the Italian Revenue Agency of tax inversion to a foreign company, the consequences can be quite heavy. The redevelopment of the residence of the foreign company involves in fact the subjecting of the same to the ordinary Italian tax regime and consequently the application:

- the ordinary taxation envisaged in Italy on income;

- sanctions for failure to keep accounting records;

- sanctions for failure to submit tax and VAT returns; 
- the taxation of dividends and capital gains and other tax consequences of various kinds.

The criminal profiles of the case are not lacking, as the omitted declaration pursuant to art. 5 of the Legislative Decree. 74/2000 is considered a tax crime. It should be remembered that criminal liability is personal and can be applied to directors and to their assets.

What controls do the Italian tax authorities operate in relation to tax inversion?

The Italian tax authorities use certain symptomatic elements to lodge disputes regarding the tax inversion, such as:

place of residence of the directors, verifying whether there is a prevalence of directors resident in Italy;
place where the Board of Directors meetings are held (verification of the directors' stay abroad). In case of videoconference meetings, check the availability of the necessary technical equipment material;
-  place of delivery and departure of business correspondence, fax and / or e-mail communications;

- place of stipulation of the contracts relating to the activities carried out by the company;

- availability of financial relationships from which the company draws the provisions for the performance of corporate activities;

- place of procurement, preparation and formation of documents, accounting or other;

- autonomy of the country managers of the foreign company in making management decisions place of execution;

Could COVID-19 have an impact on the issue of foreign investment?

Definitely in the negative. Consider, for example, all those situations in which the Italian directors or shareholders of a Polish company were unable to travel to Poland to participate in the administration and management of the company itself. In this regard, the individual specific cases will be assessed but I remain of the opinion that the Revenue Italian Agency will hardly grant "discounts" and mitigating circumstances.

What can you recommend to companies operating in Poland and which are "linked" to Italy in order to avoid disputes regarding tax inversion?

I may suggest you to rely on professionals who know both Polish and Italian legislation: considering the rather heavy consequences, it is better to avoid improvisations. IC&PARTNERS has been present for many years both in Poland and in Italy, has an in-depth knowledge of the legislation in force in the two countries and is able to provide customized solutions in order to guarantee the customer with respect to the issue of foreign investment.

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